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Moon remains confident of carrying out welfare policies

President Moon Jae-in said Thursday that the government can afford his costly social welfare policy packages without a further tax hike, but he did not rule out the possibility of an additional increase in taxes in the future.

The tax issue has been a hot potato for months in South Korea in line with Moon's slogan of "income-led growth," which calls for increasing household income and spending with the help of various policy tools to fuel sustainable economic growth.

On the policy road map released last month, Asia's fourth-largest economy will run future economic policies under four key principles -- income-led growth, job-creating economy, fair economy and innovative growth.


The government has unveiled a plan to increase the tax burden on well-off individuals and businesses to boost welfare and carry out Moon's other key campaign promises that are estimated to cost 178 trillion won ($156 billion).
Under the tax revision plan unveiled earlier this month, the finance ministry increased the income tax rate from the current 40 percent to 42 percent on people whose taxable income exceeds 500 million won per annum.

At the same time, the government will newly set the highest corporate tax bracket for businesses with taxable income of 200 billion won or more and impose 25 percent rates. Companies with income in the 20-200 billion-won range will be subject to the current rate of 22 percent.

The tax revision -- if passed by parliament -- is expected to bring in an additional 6.27 trillion won in revenue every year over the next five years, according to the ministry, which is not enough to meet the government's planned welfare expenditures.

"The government has already increased tax rates for the largest businesses. It has already announced a plan to enhance tax collection on the highest-income earners," Moon said in a press conference marking his first 100 days in office. "I believe the various welfare policies announced by the government so far can be sufficiently funded by the proposed tax hikes already announced."

Moon also said reducing and rearranging government spending was equally important as increasing tax revenues through tax hikes.

"The plans for tax increases unveiled by the government as of now have been decided to provide the exact amount of additional funds needed by the government," he said.

But the president still hinted at the possibility of a potential rate hike in the future to take expansionary fiscal policy to boost the economy and solve pressing social issues, such as income polarization and low growth.

"When the public consensus on a tax hike for fair taxation, income redistribution and welfare expansion is built some time in the future, the government can consider it," Moon said.

In line with Moon's comments, some economists predicted that the government will be compelled to increase the general tax burden for ordinary people, including adjusting the value added and income taxes.

Separate data showed that 46.5 percent of 17 million wage earners in the country were exempted from paying income tax in 2015 as income tax deduction programs give higher deduction rates to low income people. (Yonhap)

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